Reference no: EM132894615
PROBLEM 1 - On August 1, 2021, National Corporation issued $200,000 of 8% bonds at 99. The bonds mature in 10 years. Each $1,000 bond was issued with 10 detachable stock warrants, each of which entitled the bondholder to purchase, for $25, one share of National $5 par common stock. World Company purchased the entire bond issue. On August 2, 2021, the market value per share for National stock was $45 and the market value of each warrant was $6. On March 15, 2023, when National common stock had a market price of $70 per share, World Company exercised all the warrants it held.
Required -
1. Prepare the journal entry on August 1, 2021 to record the issuance of the bonds with detachable warrants by National.
2. Prepare the journal entry on March 15, 2023 to record the exercise of the warrants in the books of National.
PROBLEM 2 - On January 1, 2021, Ledge Company issued 12% bonds dated January 1, with a face amount of $5,000,000. The bonds mature on Dec. 31, 2020 (20 years). For bonds of similar risk and maturity the market rate 10%. Interest is paid annually on December 31. Braxton Corporation purchased the entire bond issue. Ledge Company uses effective interest method and Braxton Corporation use straight line method for amortization of discount or premium.
Required - For Ledge Company (Issuer)
a. Determine the issue price of the bonds at January 1, 2021.
b. Prepare the journal entry to record the issuance of the bonds on 1/1/21.
c. Prepare the journal entries to record interest in on December 31, 2021 and 2022.
d. Assume that entire bond issue is retired on January 1, 2036, at 103.
e. Calculate the carrying value of the bonds on January 1, 2036.
f. Determine the amount of gain or loss on the bond retirement.
g. Prepare the journal entry for the bond retirement.
For Braxton Corporation
a. Prepare the journal entry to record the purchase of the bonds on 1/1/21.
b. Prepare the journal entry to record the interest payment on 12/31/21
PROBLEM 3 - On January 1, 2021, Hooman Inc. leased equipment with a useful life of 8 years form Farhad Corp. for a six-year period. Equipment costs Farhad Inc. $150,000 and its estimated value the end of the lease period is $15,000 which is not guaranteed by Hooma (lessee). Fair market value of the equipment is $200,100. Equal annual payments under the lease are $45,000 (including 5,000 maintenance costs). Hooman inc. incurred initial direct costs of $6,000 related to this lease. The first payment is due on January 1, 2021and the remaining payments are made each December 31, beginning with December 31, 2021. Implicit rate on the lease is 10%.
REQUIRED - Assuming that this is a Finance lease for Hooman Inc., prepare the required journal entries for Hooman Inc. (Lessee) for 2021 and 2022.